Tax

1. INCOME TAX LAW & PRACTICE
BY
DR R MAHESHWARI

2. UNIT - I
Income Tax Act – Definition of Income – Assessment
year – Previous Year – Assessee – Scope of Income –
Charge of Tax – Residential Status – Exempted
Income.

3. INTRODUCTION TO INCOME
TAX
 Taxation, an ancient concept, is crucial for collecting funds
for government activities.
 It brings large revenues to the public treasury and
influences economic activity.
 Taxation policies aim to ensure social justice, equal wealth
distribution, and savings mobilization.
 They also control inflation and improve trade balance.
 Designing taxation policies should align with economic and
social objectives.
 Taxes are compulsory charges imposed by the government
on individuals or corporations
 Taxes are irrespective of returns from government's goods
and services
 Taxes can be imposed on income and wealth

4. TAX DEFINITIONS
• Selingman: Tax is compulsory public donation for all benefit, not
individual needs.
• Taylor: Tax is voluntary donation without direct benefit.
• Dr. Dalton: Tax is mandatory liability without reciprocal or
proportionate benefit.

5. TYPES OF TAXES
Imposed on
Who pays Individuals and businesses
Income and profits All the goods and
services
End-consumers
How much Depends on income and
profits
Same for everyone
Transferability Not transferable Transferable
Common examples Income tax and securities
transaction tax
GST, excise duty, and
VAT
Collections Complex Convenient
Tax Evasion Possible Not possible
Nature Progressive Regressive
BASIS DIRECT TAX INDIRECT TAX

6. INCOME TAX IN INDIA
• Income tax is a direct tax on income, a crucial revenue
source for the government.
• It is vital for maintaining law and order, ensuring security
from foreign powers, and promoting public welfare.
• The government's duty is to implement welfare and
development programs to bridge the wealth-poor gap.
• Fund mobilization from various sources, both direct and
indirect, is required.
• Income tax is a key tool for balanced socio-economic
growth.

7. INCOME TAX OBJECTIVES
• Reduce income and wealth distribution inequalities.
• Promote equity between tax payer classes.
• Accelerate economic growth and development.
• Provide funds for economic development.
• Encourage investment in new capital goods.
• Channel investment into sectors contributing most to economic
growth.

8. INCOME SEC 2(24)
1. Profits and gains.
2. Dividend.
3. Voluntary contribution to any
trust created wholly or partly for
charitable purposes.
4. Value of any benefit or
perquisites either in cash or kind.
5. Profit in lieu of salary.
6. Any allowances given to the
assessee.
7. Any special allowance or
benefits
8. Any sum paid as obligation by the
company.
9. Any capital gains chargeable u/s 45.
10. Any winnings from lotteries,
crossword puzzles, races including
horse races, card games and other
games of any sort.
11. Any sum received by the employee
as contribution to any provident fund
or superannuation fund or any fund set
up under the employee state insurance
act.
12. Any sum received under Keyman
insurance policy.

9. FEATURES INCOME TAXATION
• Definite source: Income is definite and must come from outside
sources, not from oneself.
• Income must come from transactions between head office and
branch office.
• Trained income: Income earned legally or illegally remains income
and is taxed according to the act.
• Diversion of income vs. application of income: Income diverted to
another person due to legal obligation, not from the assessee.

10. FEATURES INCOME TAXATION
• Temporary or permanent: Income is immaterial from the tax point of
view.
• Voluntary receipts: Receipts made for personal reasons are not
included in total income.
• Dispute regarding the title: Income received without disputed title is
not tax-liable.
• Income in money or money’s worth: Income can be in cash or in kind.
• Income of an assessee: Offerings made by devotees are considered
income, but spontaneous offerings are personal.
• Gifts to constitute income: Gifts received from non-relatives are
deemed as income from other sources.

11. HISTORY OF INCOME TAX IN INDIA
• Introduced by Sir James Wilson in 1860 to cover expenses and losses
of the Military Mutiny.
• Passed separate Income Tax Act in 1886, remained in force until 1917
with amendments.
• New Income Tax Act passed in 1918.
• Replaced by Income Tax Act 1922, remained in force until 1961-62
with numerous amendments.
• Law Commission referred the Act to simplify and prevent tax evasion
in 1956.
• Direct Taxes Administration Enquiry Committee appointed to suggest
measures to minimize tax inconveniencies.
• Income Tax Act 1961 came into force from 01st April 1962, covering
India and Sikkim.

12. PERSON SEC. 2(31)
• Individual: A natural person or human being, including minors,
children, or lunatics.
• Hindu Undivided Family: A Hindu family of lineally descended
persons, including wives and unmarried daughters.
• Company: An artificial person created by law with perpetual
succession, common seal, and limited liability shares.
• Firm: A partnership firm defined under the Partnership Act, with a
registered deed and profit sharing ratio.

13. PERSON SEC. 2(31)
• Association of Persons (AOP) or Body of Individuals (BOI): Two or
more persons joining for common purpose to earn income.
• Local Authority: Includes Municipality, Municipal Corporation,
District Board, etc.
• Artificial Jurisdictional Persons: Idols, deities, and other artificial
persons with a juristic personality.

14. Assessment Year
• Assessment year: Twelve months from April 1 to March 31 of the next
year.
• Assessees are liable to pay tax on previous year's income during the
next assessment year.
• Example: Tax for 2024-2025 would be 2023-2024.
• Current assessment year: 1.4.2024-31.03.2025

15. PREVIOUS YEAR
• The previous year refers to the 12 months preceding the assessment
year.
• For 2025-2026, the previous year will be 2024-2025, starting from 1st
April 2024 and ending on 31st March 2025.
• The assessment year remains the same regardless of whether a new
business is started between the previous year.
• The current previous year is 1.4.2024-31.03.2025.
• For a new business or profession, the first previous year starts on the
day it's set up and ends on 31st March.
• For a newly created source of income, the previous year is the period
between the source's existence and 31st March.

16. ASSESSEE [SEC. 2(7)]
Assessee refers to any person by whom any tax or any other sum of
money is payable under the income tax act 1961. It includes the
following persons.
1. Who is liable to pay tax (or)
2. Who is liable to pay penalty (or) interest (or) any sum of money under
the act (or)
3. Any person in respect of whom any proceeding is going (or)
4. A person who is deemed to be an assessee under any provisions of the
act (or)
5. A person who is deemed to be an assessee in default under any

17. TYPES OF ASSESSEE
Assessee
in
default
Ordinary
assessee
Deemed
assessee

18. ORDINARY ASSESSEE
• Pays tax or any other sum, including interest or penalty.
• Takes action by the income tax department to assess income.
• Files loss return to the department.
• Pays tax refund to the department.

19. DEEMED ASSESSEE
• Responsible for income of other person acting as a
representative.
PARTICULARS DEEMED ASSESSEE
For a minor Guardian
For a non resident Agent
For deceased person (With will) Executor
For deceased person (Without will) Legal heir or the eldest in the family.

20. ASSESSEE IN DEFAULT
• Individuals failing to fulfill statutory obligations.
• Employers and individuals paying interest are obligated to
deduct tax at source and deposit collected tax in
government treasury.
• Failure to deduct tax at source or deposit tax in treasury is
considered assessee in default.

21. RESIDENTIAL STATUS OF AN ASSESSEE
• Term coined under income tax act, not related to nationality.
• Indian citizens can be non-resident for income-tax purposes, while American citizens
can be residents of India.
• Residential status depends on territorial connections and physical stay in India.
• Different types of persons have different residential statuses.
• Assessee's residential status is determined annually, referencing the previous year.
• Essential is the status during the previous year, not the assessment year.

22. CONDITION TO DETERMINE THE
RESIDENTIAL STATUS OF AN INDIVIDUAL
BASIC CONDITIONS [SEC
6(1)]
1)Stay in India for 182 or more
in the relevant previous year (OR)
• Stay in India for a period of 60
days or more in the relevant
previous year (except to those
who is employed
abroad,employed in indian ship
crew and visting india).AND
2)365 days or more during four
years immediately preceding the
previous year
ADDITIONAL CONDITIONS
[SEC 6(6)]
• Must be resident in India in
at least 2 out of 10 previous
year preceding the relevant
previous year
• Must have stay in India for a
period of 730 days or more
during 7 previous year
preceding the relevant
previous year

23. RESIDENTIAL STATUS OF AN INDIVIDUAL
RESIDENTIAL STATUS
RESIDENT 6(1) NON-RESIDENT 2(30)(NR)
ORDINARY
RESIDENT(OR)
NOT ORDINARY
RESIDENT(NOR)
1.Satisfying one of the
basic condition
2. Satisfying both
additional condition 1.Satisfying one of the basic
condition
2. Satisfying both one or none of the
additional condition
Satisfying none of the basic
condition

24. Mr. Gatting, a foreign citizen leaves India for the first time in the last 20 years on November
25, 2021 During the calender year 2022, he comes to India on September 1, and stays in India
for a period of 20 days. During the calender year 2023 he does not visit India at all but comes
to India on January 15, 2024. Determine the residential status of Mr. Gatting for the
Assessment Year 2024-25.
SOLUTION
Determination of Residential Status of Mr. Gatting
[17+29+31] 77 days
He fails to fulfil test (a) of 6(1) as his stay is less than 182 days.
But he fulfils test (b) of 6(1) as
(1) His stay exceeds 60 days during relevant previous year, and
(ii) His stay during 4 previous years preceding the relevant year also exceeds 365 days. As he
was in India
for full year of 2019-2020 and from 1.4.2020 to 25.11.2020 hence he is Resident u/s 6(1)(b).
He can not claim the beneficial status of NOR as he was Resident of India for 9 previous years
and he was in for more than 730 days during 7 previous years preceding the relevant pervious
year. Hence Ordinary resident of india.
1.04.2023 - 31.03.2024
Stay in India 15.01.2024 - 31.03.2024
Relevant Previous year

25. SCOPE OF TOTAL INCOME
S.No
Different kinds of incomes
Different types of status
Resident Not
Ordinary
Resident
Non-
resident
1 Income received or deemed to be received
in India. It is immaterial whether it is earned in
India or in a foreign country.
TAXABLE TAXABLE TAXABLE
2 Income earned in India whether received,
paid in India or outside India.
TAXABLE TAXABLE TAXABLE
3 Income earned and received outside India
from a business controlled or profession set
up in India. Income may or may not be
remitted to India
TAXABLE TAXABLE Not-Taxable
4 Income earned or received outside India
from a business controlled or profession set-
up outside India.
TAXABLE Not-Taxable Not-Taxable
5 Income earned and received outside India
from any other source (except income under
point 3).
TAXABLE Not-Taxable Not-Taxable
6 Income earned and received outside India in
the years preceding the previous year in
question and if the same is remitted to India
Not-Taxable Not-Taxable Not-Taxable

26. (Q.NO 1) Following are the particulars of taxable income of Hari Narayan Arora for the previous year ended
31 st March.2024.
(i) Royalty received from Govt. of India Rs. 24,000 (ii) Income from business earned in Afganisthan Rs.
25,000 of which Rs. 15,000 were received in India. Business is controlled from India. (iii) Interest received
from Aditya, a non,-resident against a loan provided to him to run a business in India. Rs. 5,000. (iv) Royalty
received out side India from Alagannan an.a resident for technical services provided to run a business outside
India Rs. 20,000. (v) Income from business in Jaipur Rs. 40,000. This business is controlled from France. Rs.
20,000 were remitted to France (a) resident of India b) not ordinarily resident of India and ( c) non resident of
India in the previous year.
particulars
Resident
Not
ordinarily
resident
Non resident
(i) Royalty received from Govt. of India 24,000 24,000 24,000
(ii) Income from business Afganisthan
And Received in India
25,000 25,000 15,000
(iii) Interest deemed to accrue in india 5,000 5,000 5,000
(iv) Royalty from technical serves for out
side India
20,000
(v) Income from business in Jaipur 40,000 40,000 40,000
Total 1,14,000 94,000 84,000

27. Q.no-2: Show how the following incomes are to be assessed in the hands of an
assessee who is (a) resident (b) non-resident and ( c) not ordinarily resident.
(a) Salary drawn during the year for employment outside India from Government
of India Rs. 93,500 ( b) Salary drawn for employment in London office of an Indian
Company for three months 18,000 (c) Profits earned abroad & received in India
Rs.25,000 (d) Profit earned from business transactions outside India & kept in Bank
there 18,000 ( e) Dividend received from an Indian company Rs.3000
Non
resident
Not ordinarily
resident
Resident
Particulars
93,500 93,500
93,500
(a) Salary income drawn outside India but Govt. of
India- deemed to accrue in India
(b) Salary drawn outside India from Indian company
NIL NIL
18,000
(c) Profit received in India 25,000 25,000
25,000
(d) Profit earned and received outside India NIL
NIL
18,000
(e) Dividend received from an Indian company 3,000
3,000
3,000
Total
1,57,500 1,21,500 1,21,500

28. (Q. No. 3) Following are the incomes of Sri Amarnath for the financial year 2023-24 :
(a) Interest on saving Bank deposit in Allahabad Bank, Delhi Rs. 1,200
(b) Income from agriculture in Africa invested in Nepal Rs. 10,000
(c) Dividend received in U.K. from an American Company, a part of which Rs.2,000 remitted to India Rs.
10,000
(d) Pension received in Belgium for services rendered in India with a Limited Company Rs. 20,000
You are required to compute his total income for the assessment year 2024-25 if he is a (A) Resident (B)
Not ordinary resident (C) Non resident
Particulars Resident
Not
ordinarily
resident
Non
resident
Interest on saving Bank deposit in Allahabad Bank,
Delhi
1,200 1,200 1,200
Income from agriculture in Africa
10,000
NIL
NIL NIL
NIL
10,000
Pension received in Belgium but service rendered in India 20,000 20,000
20,000
Total 41,200 21,200 21,200
Dividend received in U.K. from an American
Company

29. Q. No. 4 . Following of the incomes of Sri Rathnam tor the previous year 2023-24,)
(i)Profit from the business in Bangalore Rs. 10,000
(ii) Income accrued in India but received in Japan Rs. 4000
(iii) Profit from business in Canada but received in lndia Rs 5,000
(iv) Income from house property in Karachi received in Bambay Rs 4,000
(v) Profit from business established in England and deposited there, the business being controlled from India Rs.20,000
(vi) Income from house property in America and deposited there Rs .2,000
(vii) Past untaxed income brought into India during the previous year Rs 10,000 compute the total income of Shri
Rathnam for the assessment year 2024-25 1f he is (a) Resident (b) N.O.R. ( c) Non-Resident.
Particulars Resident Not ordinarily
resident
Non
resident
(i) Profit from the business in Bangalore 10,000 10,000
10,000
(ii) Income accrued in India 4,000 4,000 4,000
(iii) Profit from business in Canada but received in
India
5,000 5,000 5,000
4,000
4,000 4,000
(iv) Income from house property in Karachi received in
India
(v) Profit from business in England controlled from India
20,000 Nil
20,000
(vi) Income from house property received outside India
2,000 -
-
(vii) Past untaxed income Nil Nil
Nil
Total 45,000 43,000 23,000

30. INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME
S.No. Section Exempted incomes
1. 10(1) Agricultural income
2. 10(2) Receipt from Hindu undivided family
3. 10(2A) Partner’s share in the firm
4. 10(4)(i) Interest on securities / bonds for non-residents
5. 10(4)(ii) Interest on external account of a non-resident
6. 10(4B) Interest on specific saving certificates
7. 10(5) Value of leave travel concession
8. 10(6A) Tax paid on behalf of a foreign company
9. 10(6B) Tax paid on behalf of non-residents / foreign companies in respect of
other incomes.
10. 10(6C) Royalty or free for technical services
11. 10(7) Allowances or perquisites for services rendered outside India
12. 10(8B) Income in connection under a technical assistance programmee
13. 10(10) Gratuity
14. 10(10A) Commuted pension

31. INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME
S.No. Section Exempted incomes
16. 10(10B) Any compensation to an employee
17. 10(10BB) Payment under Bhopal gas leak disaster (processing of claims) act 1985
18. 10(10C) Voluntary retirement payment
19. 10(10CC) Tax paid by employer on income by way of perquisites on behalf of an employee
20. 10(11) Provident fund payment including interest
21. 10(12) Accumulated balance of recognized provident fund
22. 10(13) Superannuation fund payment
23. 10(13A) House rent allowance
24. 10(15)(iib) Interest on capital investment bonds
25. 10(15)(iiic) Interest payable to European investment bank
26. 10(15)(iv)(i) Interest on retirement benefits
27. 10(15)(v) Interest on securities and deposits
28. 10(15)(vi) Interest on gold deposit bonds, 1999
29. 10 (17) Allowances to MPs and MLAs not exceeding Rs.2,500 p.m. [W.e.f. AY 2007-08,
constituency allowance received is also exempted without any limit]
30. 10(17A) Amount in connection with cash or kind award instituted by central or state

32. DETERMINATION OF ASSESSMENT YEAR AND
PREVIOUS YEAR:
1 .For the assessment year 2024-25 find out previous year in following cases:
1. For a business commencing on 1-1-2024, books of account of
which are maintained on calendar year basis
2.An employee who joins his job on 10th
September 2023
3.A new business is set up on 1st
May 2023.
4.A business maintains his account on Diwali to Diwali basis
(set on Diwali 2023)
5.A person wins a lottery prize on 1.11.2023
01.1.2024 to 31.3.2024
10.09.2023 to 31.03.2024
01.05.2023 to 31.03.2024
Diwali 2023 to 31.3.2024
01.04.2023 to 31.03.2024
INCOME P/Y

33. DETERMINATION OF ASSESSMENT YEAR AND PREVIOUS
YEAR:
PreviousYear
Income
1.7.2023 to 31.03.2024
1. Salary income for job joined on 1.7.2023.
Diwali 2023 to 31.3.2024
2. Newly set up business on Diwali 2023
01.10.2023 to 31.03.2024
3. New House completed on and let out from 1.10.2023.
01.04.2023 to 31.03.2024
4. Income from examinership fee from university in April,
2023
April 2023to March 2024
5. Business income April 2023 to March 2024

34. DETERMINATION OF ASSESSMENT YEAR AND
PREVIOUS YEAR:
PreviousYear
An assessee commences his business on:
1.07.2023 to 31.03.2024
1. 1st July, 2023
1.10.2023 to 31.03.2024
2. 1st
October 2023
1.01.2024 to 31.03.2025
3. 1st January, 2024

35. DETERMINATION OF ASSESSMENT YEAR AND PREVIOUS
YEAR:
Find out the assessment year for the following previous years:
Assessment year
Previous year
Income
2024-2025
April 2023 to March 2024
Salary income of Mr.A
2024-2025
April 2023 to March 2024
Business income of Mr.B
2024-2025
12.05.2023
Newly set up business on
2024-2025
Diwali 2023
Newly set up business on
2025-2026
April 2024 to March 2025
House property income

36. SCOPE OF TOTAL INCOME
Salary drawn during the year for employment outside
India from Government of India
Salary drawn for employment in London office of an
Indian company for three months.
Profits earned abroad and received in India.
Profit earned from business transactions outside India
and kept in bank there.
Dividend received from an Indian company.
TOTAL INCOME
93,500 93,500 93,500
18,000 NIL NIL
25,000 25,000 25,000
18,000 NIL NIL
3,000 3,000 3,000
1,57,500 1,21,500 1,21,500
PARTICULARS RESIDENT NOR NON-RESIDE